Dangote Refinery: Ending Nigeria’s catastrophic fuel imports

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Aliko Dangote has the patience of a civilised farmer. A civilised farmer ploughs the land, sows the seed and patiently waits for the natural processes of sprouting, growth and fruit-bearing which he has no control over. That is what Dangote did.

He wanted to own a refinery. In 2007, Olusegun Obasanjo’s lame duck administration offered Nigeria’s mismanaged refineries in Port Harcourt and Kaduna for sale. Dangote paid $670 million for the refineries and rested in apparent hope that he has achieved his aim.

When Obasanjo handed over power to Umaru Musa Yar’Adua, the ailing president bowed to pressure from acrimonious labour unions that saw the sale as a threat to their selfish interest. 

The sale was cancelled. Undaunted by Yar’Adua’s retrogressive decision, Dangote decided to swim against the tide in Nigeria’s fraudulent oil and gas industry. The multinationals controlling the upstream oil industry had flaunted an untested argument that with the federal government regulating the pump prices of refined petroleum products, no private refinery can break even in Nigeria.

Dangote defied the weird hypothesis of the multinationals that were collaborating with the Nigerian National Petroleum Company Limited (NNPCL) to keep Nigeria perpetually as a net importer of refined products.

He sold the idea of a private refinery to international lenders and they saw wisdom in his argument. 

They doled out well over $10 billion in loans for building the refinery. Today, Dangote and the international lenders who defiantly funded the venture against the weird views of the saboteurs in the upstream industry have shown to the world who was telling the truth.

A giant refinery covering the land space about seven times the size of Victoria Island in Lagos now sits menacingly on Nigerian soil poised to take $10 billion annually from the refineries in Europe that have impoverished Nigeria in the last 30 years since invincible corruption and NNPCL’s ineptitude ran Nigeria’s four refineries aground.

With the total dependence on refined petroleum products imports, Nigeria was exporting both its scarce foreign exchange and thousands of jobs. Nigeria exports crude oil at prices it cannot control and imports refined petroleum products and petrochemicals at prices determined by the exporters.

That explains why Nigeria now services its modest debt with 96.3 per cent of revenue. Calculated on the basis of gross domestic product (GDP) ratio, Nigeria’s debt is one of the lowest in the world.

But appallingly low revenue sapped by corruption and indecently flamboyant lifestyle of government officials makes the servicing of the modest debt look like climbing Mount Everest.

With Dangote’s dream refinery finally coming on stream, Nigeria would not only save a minimum of $10 billion annually, it will create hundreds of thousands of direct and indirect jobs.

Besides, the new refinery will move Nigeria into the exclusive club of refined petroleum products exporters. Dangote refinery would be churning out something close to $10 billion annually from refined petroleum products exports.

Cumulatively, Nigeria might save as much as $20 billion annually from refined petroleum products imports and earnings from exports of the same products.

Nigeria may be heading out of its self-imposed foreign reserve penury if the Central Bank of Nigeria (CBN) is willing to streamline its duplicitous exchange rate policy.

Even the local consumers of refined petroleum products would benefit from Dangote Refinery. The pump prices of refined products may not crash. Crude oil is priced in dollars. And even if Dangote will be paying for it in naira, it will be calculated on the basis of a weak naira exchange rate.

But it cannot be the same as buying refined products in dollars and converting the landing cost to naira. Besides, the huge cost of freighting imported refined products from Europe to Nigerian shores is phased out. That could chop off something close to N100 from the cost of a litre of refined products.

If the federal government withdraws its mismanaged subsidy on petrol while Nigeria still imports the product, the pump price of petrol imported with dollars from the parallel market might surge to N650 per litre. That is the pump price of deregulated diesel at the moment.

However, with locally refined petrol, subsidy withdrawal may not push the pump price above N300. A major gain from the Dangote Refinery would be the reactivation of Nigeria’s quiescent petrochemical industry.

With total dependence on imported refined petroleum products, Nigeria paralysed its petrochemical industry as it had to import at high cost, the industry’s raw materials derived crude oil residue. Thousands of jobs in the industry were exported with the cheap crude oil.

That explains why prices of water and soft drinks in plastic bottles have surged by 200 per cent with the massive devaluation of the naira in the last two years.

Consumers of those products may heave sighs of relief if government ensures that operators pass the gains of the new refinery to them by lowering prices.

The coming on stream of Dangote Refinery has thrown a daunting challenge to the managers of Nigeria’s four cash-guzzling refineries that have been turned to ATM for vested interests within government.

If Dangote runs his refinery profitably, they will have no reasons to operate the public ventures as drain pipes which they have been in the last 30 years.

The monthly pay of the lowest ranking worker in the failed refineries is a level 8 officer’s annual pay in the civil service. Yet they have not refined a barrel of crude oil in the last two years.Their managers are administratively inept an morally bankrupt.

Unlike the case with cement, Dangote has been curiously silent on the pump price of products from his refinery. He is probably trying to avoid a replay of his failed promises over cement price. 

When he entered the industry, he promised to drop cement price to N1, 000 per 50kg bag. Today even as his products saturate the market, the Nigerian factor has pushed the price to N4, 000. Consumers expect a different scenario in petroleum products prices.

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